Alibaba Ramps Up Investment in Growth, Analysts Adjust Forecast Amid Strategic Pivot

Benchmark analyst Fawne Jiang maintained a Buy rating on Alibaba Group Holding Ltd BABA and lowered the price target to $118.

Alibaba reported third-quarter fiscal 2024 with a solid profit beat on moderately below expectation revenue. 

Jiang’s key takeaway from the quarter was that BABA is back on offense – the company has decided to pivot toward growth and invest in revitalizing its core businesses (Taobao and Tmall Group or TTG, Cloud, and Alibaba International Digital Commerce Group or AIDC). 

For TTG specifically, they are committed to reinvesting the incremental Customer management revenue (CMR) to propel GMV growth, encouraged by the recent positive growth signs. 

Jiang noted the renewed growth focus as a positive strategic move but acknowledged that growth recovery may take time to materialize and sustain. With the pace and magnitude of the investment cycle uncertain, he anticipated volatility in profit in the fourth quarter of fiscal 2024 and fiscal 2025. 

He has lowered his fiscal 2024 and fiscal 2025 adjusted EBITDA estimates accordingly. On the positive side, Jiang said BABA accelerated its share buyback in the quarter. 

It announced an increase of its share repurchase program of $25 billion with a total balance of $35.3 billion available through the next three fiscal years.

Susquehanna analyst Shyam Patil maintained Alibaba with a Positive and lowered the price target from $150 to $135.

As BABA continues to navigate the uncertain China macro, management remains focused on prioritizing top-line growth and increasing investment levels, especially in its core businesses, Patil stated. 

Despite some near-term uncertainty, he continues to like BABA’s positioning as a key China e-commerce player and its ample secular growth opportunity.

Mizuho analyst James Lee maintained Alibaba with a Buy and lowered the price target from $100 to $95. 

The company reported a mixed quarter, as per the analyst. Although GMV accelerated due to demand elasticity in steep price discounts, margins faced headwinds from a mix shift to the lower-priced platform Taobao. 

With incremental investments in international commerce, Lee expects margin headwinds to remain into fiscal 2025. 

As a result, he reduced his fiscal 2025 consolidated EBITDA by nearly 5% to 210 billion RMB. 

The new $25 billion buyback is encouraging, although the business transition could take some time. The analyst noted BABA as an attractive turnaround story.

Goldman Sachs analyst Ronald Keung maintained Alibaba with a Buy and lowered the price target from $121 to $105.

The analyst flagged an in-line quarter, reinvesting for core business growth ahead while sustaining capital returns.

Baird analyst Colin Sebastian maintained an Outperform rating with a price target of $85, down from $90.

Alibaba reported third-quarter results in line with expectations, while revenues for Taobao and Tmall were a little below consensus. 

Investor focus will now pivot towards management’s plans to reinvest for growth during the calendar year, the analyst said. 

As part of the new management’s strategic priorities, Alibaba is focused on growth, including stabilizing market share in core China e-commerce segments, building on solid growth in cross-border volumes, and accelerating revenues in the public cloud market. 

These initiatives will require incremental investments in the near term (lower margins) but represent the realities of changing consumer buying habits and greater competition. 

While China remains a challenging investment area, Sebastian noted good value in Alibaba’s efficient marketplace and domestic cloud business, which generate meaningful free cash flow.

Barclays analyst Jiong Shao had an Overweight rating with a price target of $109.

The analyst said that Alibaba’s December quarter results were broadly in line with expectations. 

While the focus on shareholder return is unchanged with upsized buyback, management is now shifting focus to growth in its core TTG and cloud and international AIDC business.

JP Morgan analyst Alex Yao had an Overweight rating with a price target of $105, down from $110.

The analyst expects the lackluster financial outlook to continue. He noted that the upsizing of the share buyback program offers downside protection to stock price.

Price Action: BABA shares closed lower by 3.88% at $70.78 on Thursday.

Alibaba Photo Via Shutterstock